Saturday, April 3, 2010

Crisis in Confidence?

This story on the business potential of ECP is pretty downbeat. JOE says "more investments!".

An investment should have a return similar to the interest on its debt. ECP borrows at about 4.6 percent, so how much should it "earn" on its $400 Million invested to date? If it earns nothing, the imputed debt will double in 14 years and re-double every 14 years after that.

The power of compound interest means that a mis-allocated large public "investment" becomes a huge millstone hanging on the economy if it does not perform FROM THE BEGINNING.

These political 'investments" are never audited to see if they perform; instead, they are absorbed as "baseline" and more and more resources poured in.

Just some musings on this story to mark it for a reality check in the future.